Mortgage - lump sum off term or reduced monthly repayments

geographica

Not sure if this is on car text area, mod please move if not thanks

€100,000 mortgage, terms 8.5 years

max can be paid in lump sum is 10% or €10,000

Should the lump sum amount go towards reducing the term or reducing the monthly repayments?

Dont necessarily need to reduce the monthly repayment as it’s afforded but just wondering what would be the most logical and most beneficial in getting rid of the mortgage quicker?

XsApollo

Well I’m not an expert but if you want to pay it quicker then it needs to come off the term?

where as reducing the payment will keep the same term.

also less interest to pay by shortening the term.

Padre_Pio

https://www.boards.ie/discussion/2058331351/mortgage-lump-sum-off-term-or-reduced-monthly-repayments

Personally I would take it off the term if you can afford the payments now.

Then if circumstances changed (kids, remodel, health issues) I'd look to reduce monthly payments.

phormium

Unless you are absolutely sure that nothing is likely to happen to stop you paying the existing repayment then you can reduce the term. Personally I think it's always best leave the term alone and just overpay monthly on top of new lower payment but obviously if that is not an option on your mortgage type then you've no choice.

If you keep paying the same payments even with the lump sum the term will end early whether you officially shorten it or not but it just means that if for any reason you need to drop back to paying a lower amount you're at the mercy of the bank trying to extend the term again or similar! Better to keep options open.

AndyBoBandy

Take it of the term all day long, especially if you have no issues with the current monthly payments.

Would you also consider going variable to allow more frequent and regular overpayments? You might have a slightly higher interest rate, but if the capitol amount is now only 100k or soon to be 90k, the difference in interest from a fixed to a variable might not be so big...

This is a great calculator for showing how much impact a lump sum payment, or regular overpayments can have on the term of your mortgage.

https://www.ccpc.ie/consumers/money-tools/extra-mortgage-payments-calculator/?gad_source=1&gclid=EAIaIQobChMIgoXVr5XfgwMVxZdQBh03ywMLEAAYASAAEgLXyfD_BwE&gclsrc=aw.ds

If I plug in an interest rate of 4%, look how much difference a regular overpayment of €200 a month can make!! can take 20 months of the term and save over €4k in interest...

I had a 20 year mortgage and paid it off after 9 years with regular overpayments, and saved €50k in interest. I remained variable for the duration.

Padre_Pio

There's an app called Karl's mortgage calculator that shows you the benefits of both approaches.

Personally my loan is fixed for the next 4 years, but I'm saving a lump sum payment in a high interest savings account. Hopefully, it'll knock 5 years off the mortgage and save tens of thousands.

listermint

https://www.boards.ie/discussion/comment/121617620#Comment_121617620

Who's the savings provider if you don't mind sharing

Padre_Pio

https://www.boards.ie/discussion/comment/121617625#Comment_121617625

Trade republic.

4% interest pa up to 50k. I doubt we'll get more than 50k into the account, if we do I'll ask my partner to open an account in her name too.

geographica

Thank you all for the great advice and help

Q&A

https://www.boards.ie/discussion/comment/121617599#Comment_121617599

This is the best advice. Overpay but keep it flexible. If the worst happens you can redirect the discretionary overpayment to something else if needed.

https://www.boards.ie/discussion/comment/121617605#Comment_121617605

To be clear you can always overpay a fixed rate mortgage. There may (or may not) be a break fee. I wouldn't be chucking away a potentially cheap fixed rate just to avoid the hassle of a potential break fee

AndyBoBandy

I believe the standard ‘allowance’ for overpaying on a fixed rate is 10% of remaining balance… but depending on how much you want to overpay, this could be very limiting.. (we over paid each month by about 140% (100% + 140%) so wanted complete flexibility to overpay as much as we could without penalty, hence staying variable from the beginning & throughout the term. I know we could have partially fixed to get slightly better rates on portions of the loan, but by then we were so close to finishing it we just left it as is…